# Punjab National Bank v. State Of U.P. & Ors

- **Citation:** (2016) 5 ILRA 612
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2016-05-19
- **Bench:** Sudhir Agarwal, Shamsher Bahadur Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/punjab-national-bank-v-state-of-u-p-ors-43889
- **Pages:** 7

## Headnote

C.S.C., Ashok Mehta, Mukhtar Alam, S. Nandan, U.N. Sharma

 Punjab National Bank (hereinafter referred to as 'Bank') is a body corporate constituted under Banking
Companies (Acquisition and Transfer of Undertakings), 1970. It advanced certain credit facilities to one M/s
Luxmi Industrial & Trading Company Limited (hereinafter referred to as 'respondent-4') which included Cash
Credit Limit upto Rs.10 lacs; Cash Credit Hypothecation Limit upto Rs. 4 lacs and documentary D.D. Limit upto
Rs.5 lacs. Limit of aforesaid facilities subsequently was extended from time to time. Two Directors of
respondent-4, including its Managing Director executed guarantee deed to secure repayment of amount of
aforesaid credit facilities in case there is any default on the part of respondent-4. There was default on the
part of respondent-4 in repayment of dues, hence Bank filed Suit No.20 of 1983 for recovery of
Rs.57,27,575.44/- with pendente lite interest.

Court clarified that aforesaid doctrine is applicable in respect to tax money but in respect of other debts
if they are contracted by the citizens in relation to commercial activities, the position would be different. Here
we are not concerned with the question of conferring any priority right or first charge to the dues sought to
be recovered by respondents-2 and 3 from immovable property of respondent-4 but we are examining the
claim of first charge or lien raised by petitioner Bank. Since it has failed to place any material document on
record to show that it has first charge or lien over disputed property, we are clear, in our view, that challenge
to auction proceeding adopted by respondent-3 in respect of immovable property of respondent-4, has no
legal obstruction or infirmity in law, so as to warrant interference in this writ petition.
The writ petition, therefore, lacks merit. Dismissed.

Held: Para-

Case Law discussed:
5 All. Punjab National Bank Vs State Of U.P. & Ors.

613
Bank of India vs. John Bowman, AIR 1955, Bom.305,
Manickam Chettiar vs. ITO, AIR 1938, Mad.360,
People's Bank of Northern Indian Ltd. Vs. Secretary of State for India, AIR 1935, Sind 232,
Vasan Bai Topandas vs. Radhabai Tirath Das, AIR 1933, Sind 368, M/s Builders Supply Corporation vs. Union
of India, AIR 1965, SC 1061.

## Text

612 INDIAN LAW REPORTS ALLAHABAD SERIES
29. The appeal is accordingly dismissed with costs throughout and special cost of
Rs.2,000/-. The cross objections filed by plaintiffs-respondents are also dismissed.

30. Interim order, if any, stands discharged.
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ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 19.5.2016

BEFORE

THE HON'BLE SUDHIR AGARWAL, J.
THE HON'BLE SHAMSHER BAHADUR SINGH, J.

Writ C No.- 2029 Of 2002

Punjab National Bank ...Petitioner
Versus
State Of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Ramesh Singh, R.K. Pal

Counsel for the Respondents:
C.S.C., Ashok Mehta, Mukhtar Alam, S. Nandan, U.N. Sharma

 Punjab National Bank (hereinafter referred to as 'Bank') is a body corporate constituted under Banking
Companies (Acquisition and Transfer of Undertakings), 1970. It advanced certain credit facilities to one M/s
Luxmi Industrial & Trading Company Limited (hereinafter referred to as 'respondent-4') which included Cash
Credit Limit upto Rs.10 lacs; Cash Credit Hypothecation Limit upto Rs. 4 lacs and documentary D.D. Limit upto
Rs.5 lacs. Limit of aforesaid facilities subsequently was extended from time to time. Two Directors of
respondent-4, including its Managing Director executed guarantee deed to secure repayment of amount of
aforesaid credit facilities in case there is any default on the part of respondent-4. There was default on the
part of respondent-4 in repayment of dues, hence Bank filed Suit No.20 of 1983 for recovery of
Rs.57,27,575.44/- with pendente lite interest.

Court clarified that aforesaid doctrine is applicable in respect to tax money but in respect of other debts
if they are contracted by the citizens in relation to commercial activities, the position would be different. Here
we are not concerned with the question of conferring any priority right or first charge to the dues sought to
be recovered by respondents-2 and 3 from immovable property of respondent-4 but we are examining the
claim of first charge or lien raised by petitioner Bank. Since it has failed to place any material document on
record to show that it has first charge or lien over disputed property, we are clear, in our view, that challenge
to auction proceeding adopted by respondent-3 in respect of immovable property of respondent-4, has no
legal obstruction or infirmity in law, so as to warrant interference in this writ petition.
The writ petition, therefore, lacks merit. Dismissed.

Held: Para-

Case Law discussed:
5 All. Punjab National Bank Vs State Of U.P. & Ors.

613
Bank of India vs. John Bowman, AIR 1955, Bom.305,
Manickam Chettiar vs. ITO, AIR 1938, Mad.360,
People's Bank of Northern Indian Ltd. Vs. Secretary of State for India, AIR 1935, Sind 232,
Vasan Bai Topandas vs. Radhabai Tirath Das, AIR 1933, Sind 368, M/s Builders Supply Corporation vs. Union
of India, AIR 1965, SC 1061.

(Delivered by Hon'ble Sudhir Agarwal, J.
&
Hon'ble Shamsher Bahadur Singh, J.)

1. Sri Ramesh Singh, Advocate has put in appearance on behalf of petitioner-Bank and
learned Standing Counsel for respondents-1, 2, 3 and 6.

2. Punjab National Bank (hereinafter referred to as 'Bank') is a body corporate constituted
under Banking Companies (Acquisition and Transfer of Undertakings), 1970. It advanced certain
credit facilities to one M/s Luxmi Industrial & Trading Company Limited (hereinafter referred to as
'respondent-4') which included Cash Credit Limit upto Rs.10 lacs; Cash Credit Hypothecation
Limit upto Rs. 4 lacs and documentary D.D. Limit upto Rs.5 lacs. Limit of aforesaid facilities
subsequently was extended from time to time. Two Directors of respondent-4, including its
Managing Director executed guarantee deed to secure repayment of amount of aforesaid credit
facilities in case there is any default on the part of respondent-4. There was default on the part of
respondent-4 in repayment of dues, hence Bank filed Suit No.20 of 1983 for recovery of
Rs.57,27,575.44/- with pendente lite interest.

3. Trial Court, vide order dated 4th August,1983, appointed Advocate Commissioner as
Receiver of respondent-4, company and also to sell Khair wood lying in premises to avoid damage
to the same. Advocate Commissioner sold Khair wood through auction for consideration of
Rs.7,66,620/- and deposited the same in Trial Court in the shape of Fixed Deposit Receipt in the
name of respondent-4. Original Suit No. 20 of 1983 was decreed, vide judgement and decree dated
31.5.1993, against respondent-4, for recovery of aforesaid mentioned amount along with interest at
the rate of 12 per cent per annum. Trial Court did not pass any decree against guarantors, namely,
Kishori Lal Seth and Nand Kishore Seth.

4. Thereagainst Bank filed First Appeal No.612 of 1993. Appeal was allowed, vide
judgement dated 8th September, 2000, passed by a Division Bench of this Court. Trial Court's
judgement dated 31.5.1993 was modified. This Court held that suit is decreed against defendants 3
and 4 i.e. two guarantors as well, for recovery of the amount after adjusting value of goods which
were pledged with Bank. However, this Court found that with regard to value of pledged goods,
Trial Court has not recorded its finding very clearly, hence directed Trial Court to record specific
finding regarding value of pledged goods which was to be adjusted against recovery of amount
from defendants.
614 INDIAN LAW REPORTS ALLAHABAD SERIES
5. In the meantime, there came enactment, "The Recovery of Debts due to Banks and
Financial Institutions Act, 1993" (hereinafter referred to as 'Act, 1993') which came into force on
24th June, 1993. In view of Section 31 of Act, 1993, proceedings pending in Civil Court after
judgment dated 8.9.2000 passed by this court in First Appeal No.612 of 1993, were transferred to
Debts Recovery Tribunal, Allahabad (hereinafter referred to as 'DRT').

6. A news item was published in daily newspaper 'Amar Ujala' dated 7.4.2001 that
respondent-4 (Company) was attached by District Administration for recovery of Rs.39,59,784/-
towards outstanding dues in respect of Khair wood supplied by Forest Department, Morena,
Madhya Pradesh and its movable and immovable properties would be sold by auction. Bank filed
an objection dated 30.4.2001 before Collector, Bijnor, stating that properties of respondent-4, are
already mortgaged with Bank and decree has also been passed in its favour. Bank has first charge
under Section 171 of Contract Act, 1872 (hereinafter to as 'Act, 1872') over property of
respondent-4 so as to realize its dues from said properties and without satisfying its dues, no
auction can be held by Collector or his agents. Collector required Tehsildar to submit report but
without complying with same respondents-1 and 3 auctioned property of respondent-4 for
Rs.10,25,000/- in favour of one Nazim Khan on 8th May, 2001. Since property is worth about
crores of rupees, several objections were raised, hence auction sale was cancelled on 11.5.2001.

7. Bank then submitted an application dated 15.5.2001, enclosing therewith orders dated
29.6.1987 and 20.5.1988 passed by Commissioner, Moradabad Division, Moradabad and SubDivisional Magistrate, Najibabad, stating that property mortgaged with Bank can not be sold for
realization of other dues. Respondent-3, however, without taking note of aforesaid application,
fixed 11.6.2001 for auction sale of immovable property of respondent-4. Bank thereafter filed Civil
Misc. Writ Petition No.21994 of 2001 before this Court, seeking following reliefs:

"(a) to issue a writ, order or direction in the nature of certiorari quashing the
recovery proceedings initiated by respondent no.3 on the Recovery Certificate issued by respondent
no.2 against the properties of respondent no.4.

(b) to issue a writ, order or direction in the nature of mandamus to respondent no.1
and 3 not to proceed with the auction of the properties of respondent no.4 including confirmation of
auction already held.

(c) to issue such other writ, order or direction which this Hon'ble Court may deed
fit and proper for giving adequate relief to the petitioner/Bank.

(d) to allow this writ petition with costs."

8. Aforesaid writ petition filed by Bank was disposed of, vide judgement dated 6.6.2001,
directing respondent-3 to dispose of objection filed by petitioner-Bank after affording opportunity
of hearing.
5 All. Punjab National Bank Vs State Of U.P. & Ors.

615
9. Bank then filed a fresh objection on 11.6.2001. Respondent-3, though dismissed
objection filed by Bank but did not proceed for auction on the ground that recovery certificate was
forwarded by respondent-2 and not by District Magistrate, Morena. Bank thereafter filed an appeal
before Commissioner, Moradabad Division, Moradabad but the same was also dismissed as not
maintainable, vide order dated 18.12.2001. Bank, in the meantime, filed another objection dated
27.11.2001 which was not admitted by respondent-3, hence the same was forwarded by registered
post to Collectors, Morena and Bijnor, State of U.P. through Chief Secretary, Lucknow, SubDivisional Magistrate and Tehsildar Najibabad. Respondent-3, then again auctioned property on
10.12.2001.

10. This writ petition has been filed, challenging aforesaid auction proceedings as also
recovery certificate issued by respondent-2 on the ground that properties of respondent-4, being
mortgaged with Bank, who has first charge over the same, without satisfying dues of Bank, no
auction of properties of respondent-4 can be made.

11. Learned Standing Counsel contesting the matter drew our attention to counter affidavit
filed on behalf of respondent-2 and stated that there was an agreement between Divisional Forest
Officer, Gwalior, Madhya Pradesh and respondent-4, for purchase of Khair wood and as per
condition no.4 (h) of agreement dated 7th May, 1979, in case of default in making payment by
purchaser, authorities had option to terminate agreement and forfeit Security Deposit in full and
resale undelivered stock and recover shortages of price in resale as arrears of land revenue. There
were two such agreements. Respondent-4 committed default, hence agreements were terminated
and Recovery Certificate was issued by respondent-2 on 24.5.1980. The same was challenged in
Civil Misc. Writ Petition No.6432 of 1980 in which initially an interim order was passed and
thereafter writ petition was dismissed with costs, vide judgement dated 16.1.1997. Thereafter fresh
Recovery Certificate was issued on 19.9.2001 by Collector, Morena for realization of amount due
against respondent-4. Pursuant thereto, respondent-3 initiated recovery proceedings whereagainst
Bank filed Civil Misc. Writ Petition No.21994 of 2001 which was disposed of with direction to
Bank to file an objection before respondent-3 and he was to decide the same by a reasoned order.
Respondent-3 passed order dated 28.8.2001, rejecting objection and thereafter proceeded for
recovery.

12. It is pointed out that dues in question are government dues. Therefore, they shall have
priority over claim of charge by Bank and placed reliance on the decisions in Bank of India vs.
John Bowman, AIR 1955, Bom.305, Manickam Chettiar vs. ITO, AIR 1938, Mad.360,
People's Bank of Northern Indian Ltd. Vs. Secretary of State for India, AIR 1935, Sind 232,
Vasan Bai Topandas vs. Radhabai Tirath Das, AIR 1933, Sind 368 and M/s Builders Supply
Corporation vs. Union of India, AIR 1965, SC 1061.

13. First submission advanced on behalf of the Bank to claim charge over the property of
respondent-4 is founded on Section 171 of Act,1872 which reads as under:
616 INDIAN LAW REPORTS ALLAHABAD SERIES

"171. General lien of bankers, factors, wharfingers, attorneys and policy-brokers.-
Bankers, factors, wharfingers, attorneys of a High Court and policy-brokers may, in the absence of
a contract to the contrary, retain as a security for a general balance of account, any goods bailed to
them; but no other persons have a right to retain, as a security for such balance, goods bailed to
them, unless there is an express contract to that effect."

14. The lien contemplated under Section 171 is relatable to the goods bailed to Bank. Here
in the case in hand, we are concerned with immovable property of respondent-4 which has been
attached and auctioned which is challenged in the present writ petition. Section 171, therefore, has
no application, whatsoever, in the case in hand.

15. It is also admitted that pledged goods were already sold by Receiver and consideration
realized was deposited in the form of Fixed Deposit Receipts in the name of respondent-4 in Trial
Court. There is vague contention that Company's properties were under equitable mortgage with
the Bank but no document has been placed on record in support thereof. The judgement of this
Court in First Appeal No.612 of 1993 filed by Bank shows that there was a collateral guarantee
extended by defendants-3 and 4 to ensure repayment of outstanding dues of the Company and suit
was decreed by Court against guarantors. We do not find anything available on record to show that
Bank has any charge or first charge over immovable property of Company in any manner.

16. On the contrary, in respect of recovery of dues in dispute in this writ petition, it is
evident from record that there was an agreement between respondent-4 and the Forest Department
that in case of default in repayment of price of Khairwood, the same shall be recovered as arrears of
land revenue. Hence respondents-2 and 3 are within their rights to proceed against property of
respondent-4 for recovery of outstanding dues as arrears of land revenue. Dues of Bank are secured
to the extent that it had a first charge by virtue of lien it had over the hypothecated goods of
Company and thereafter to the extent the individual guarantors have executed guarantee
agreements but so far as immovable property of Company is concerned, in the absence of any
document to show that dues of Bank were also secured against such immovable property or the
property which is subject to auction and in challenge under the present writ petition, the Bank has
no claim against such property, whatsoever, by virtue of claiming an existing lien or charge or a
right of priority. There was a common law doctrine associated with Crown's prerogative
recognizing pre-imminence of the sovereign over and above all other persons but as such the same
has not been recognized under Constitution of India, though to some extent in respect of some
matters the doctrine has been recognized.

17. In Secretary of State for India Versus Bombay Landing and Shipping Company
Ltd. (1888-89) 5 Bom HCR 23, it was held that a judgement debt due to the Crown was entitled in
Bombay to the same precedence in execution as a like judgement in England, if there be no special
legislative provision affecting that right in a particular case. It was also held that judgement debt
due to the Secretary of State in Council for India was in Bombay entitled to the like precedence for
the reason that such debt is vested in the Crown, and when realized, falls into the State Treasury.
Court referred and relied, tracing origin of aforesaid doctrine, to the Commentary of Lord Coke on
5 All. Punjab National Bank Vs State Of U.P. & Ors.

617
Littleton wherein it was said that, "The King, by his prerogative, regularly is to be preferred, in
payment of his duty or debt, before any subject although the King's debt or duty be the latter." The
Court also referred to existence of similar doctrine in Hindu Scripture by referring to Yagyavalkya
and Katyayan.

18. Then a Full Bench of Madras High Court in Manickam Chettiar vs. Income Tax
Officer, AIR 1938, Mad.360, held that income tax debt has priority over private debts and Court
had inherent power to make an order on application for payment of monies due to the Crown.

19. Again Bombay High Court in Bank of India Vs. John Bowman, AIR 1955, Bom 305,
through Chagla CJ, observed that the priority given to the Crown is not on the basis of its debt
being a judgement-debt or a debt arising out of statute, but the principle is that if the debts are of
equal degree and the Crown and subject are equal, Crown's right will prevail over that of the
subject.

20. In Kaka Mohamed Ghouse Sahib and Co. Versus United Commercial Syndicate
(1963) 49ITR 824 (Mad), Madras High Court held:

"It is settled principle of constitutional law as between the creditors of the same
rank the Government is entitled to priority, and the Republican character of the Constitution of
India has not abrogated this general doctrine of priority of State debts."

21. The aforesaid authorities have been referred to in M/s Builders Supply Corporation vs.
The Union of India and others, AIR 1965, SC 1061 and Court has held in para 15 of the judgement
that:

"Consensus of all opinion is in support of applicability of common law doctrine in
regard to the tax dues in this country and there is no reason to take a different view."

22. Court further said that after enactment of Constitution, by virtue of Article 372, Rules
of common law relating to substantive rights which had been adopted in this country and enforced
by judicial decisions, amount to law in force in the territory of India at the relevant time and,
therefore, would continue unless altered, reversed otherwise by statutes.

23. Court then clarified that aforesaid doctrine is applicable in respect to tax money but in
respect of other debts if they are contracted by the citizens in relation to commercial activities, the
position would be different. Here we are not concerned with the question of conferring any priority
right or first charge to the dues sought to be recovered by respondents-2 and 3 from immovable
property of respondent-4 but we are examining the claim of first charge or lien raised by petitioner
Bank. Since it has failed to place any material document on record to show that it has first charge
or lien over disputed property, we are clear, in our view, that challenge to auction proceeding
618 INDIAN LAW REPORTS ALLAHABAD SERIES
adopted by respondent-3 in respect of immovable property of respondent-4, has no legal
obstruction or infirmity in law, so as to warrant interference in this writ petition.

24. The writ petition, therefore, lacks merit. Dismissed.

25. Interim order, if any, stands vacated.
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APPELLATE JURISDICTION
CRIMINAL SIDE
DATED: ALLAHABAD 19.05.2016

BEFORE

THE HON'BLE SHASHI KANT GUPTA, J.
THE HON'BLE KAUSHAL JAYENDRA THAKER, J.

Criminal Appeal No.- 2049 Of 1982

Jaiveer & Ors. ...Appellants
Versus
State Of U.P. ...Respondent

Counsel for the Appellants:
Ravindra Singh, Ashok K. Jaiswal

Counsel for the Respondent:
DGA, Dharmendra Singh

The present appeal was filed in the year 1982 against the impugned judgment dated 25.8.1982 and it has
come for hearing before us after the lapse of a period of about 34 years.
Taking into account the totality of circumstances, we are of the view that the prosecution has failed to
complete the chain of circumstances to arrive at the conclusion that the offence was committed by the
present appellants and not by anybody else. The present case is basically based on "last seen theory" but the
'last seen theory' has not been found trustworthy and sufficient for conviction of the appellants. The view
taken by the Court below while convicting the appellants No. 1 and 3 namely Jaiveer and Bahadur respectively
is palpably wrong and the findings recorded by the Court below are perverse, erroneous and cannot stand the
scrutiny of law. The judgment passed by the trial court is based on a complete misreading of the case and
misconception of the legal position relevant to the matter and has not considered the evidence on record in
right perspective. The prosecution has not been able to prove the case beyond doubt. In our considered
opinion the reasons given by the Trial Court are not sufficient to convict the appellants. Hence, we shall
extend benefit of doubt to the appellants and shall acquit them of the charges.

Held: Para-

Case Law discussed:
Sk. Yusuf Vs. State of West Bengal, 2011 (74) ACC 293
Roopsena Khatun Vs. State of West Bengal, 2011 (74) ACC 230
Guru Dev Singh Vs. State of MP [2011 (74) ACC232]